The 3-D Market Is for Real

There's life in 3-D cinema yet.

Shares of digital 3-D projection technologist RealD (NYSE: RLD  ) are soaring today, gaining as much as 22% on extremely heavy trading volume. Life-sized surprises in last night's third-quarter report jumped out at investors like the silver screen images behind the results.

Sales fell 15% year over year to $49 million, but your average analyst expected just $43 million. The strong revenues filtered all the way down to a bottom-line boost, where RealD saw a GAAP net profit of $0.05 per share. Analysts expected losses of about the same size.

RealD projectors have now been installed in 19,700 screens worldwide, a 74% jump in 12 months. Domestically, you'll find the technology on about 11,500 screens. At last count, American cinemas had installed about 22,000 digital projection systems, covering 58% of all available screens.

Leading theater chains AMC, Regal Entertainment (NYSE: RGC  ) , and Cinemark have committed to RealD in a big way, making it available on 40% of their aggregate screens. That's a big win, considering that competing systems are available from Dolby Laboratories (NYSE: DLB  ) , Sony, and a couple of smaller rivals. RealD claims about a 50% global market share against all these alternatives. Moreover, IMAX (Nasdaq: IMAX  ) provides its own 3-D technology for those larger-than-life screens, so RealD doesn't get to play on those.

On a global level, we have over 60,000 digital screens. That leaves a lot of room for RealD expansion, first as celluloid systems convert into digital, and then as the battle for 3-D share rages on.

Note that RealD doesn't just collect license fees on projector installations, but also grabs a small royalty out of the 3-D box office they generate. 2012 has a downright mouthwatering slate of films coming to the medium, including re-releases of Titanic and the Star Wars saga, Peter Jackson's The Hobbit, the rebooted Spider-Man series, and superhero tentpole The Avengers. Not satisfied with just the Marvel action, Walt Disney (NYSE: DIS  ) also churns out 3-D versions of titles from its golden age, including The Little Mermaid and Monsters, Inc.

If that pipeline doesn't set RealD and IMAX up for amazing profits, I don't know what will.

RealD set itself up for a big bounce here, but the Fool has found one stock with its spring coiled even tighter. We call it The Motley Fool's Top Stock for 2012 in a special report, available for free but only for a limited time. Get your copy right now.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of IMAX, Disney, and Dolby. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


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